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Doubts About Netherlands’ Credibility After Cabinet Resigns

The government’s collapse jeopardizes the Dutch austerity agenda.

Nick Ottens

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Nick Ottens

The Netherlands’ liberal prime minister, Mark Rutte, tendered his cabinet’s resignation to Queen Beatrix on Monday afternoon. His right-wing coalition collapsed over the weekend, when Freedom Party leader Geert Wilders pulled out of crucial budget talks.

The resignation of Rutte’s minority government, composed of the Christian Democrat and his own liberal party, leaves a political vacuum in one of the eurozone’s core member states only weeks ahead of a deadline to submit national spending plans to the European Commission for review.

Haste

Wilders’ populist Freedom Party, which had no cabinet members but did vote with government until Saturday, would not countenance another €14 billion worth of austerity measures, which would have reduced the Netherlands’ shortfall to under 3 percent of gross domestic product, the European treaty limit.

Centrist and left-wing opposition parties may back deeper cuts before snap elections can be held, but a majority, now including the Freedom Party, does not share the government’s haste in bringing the deficit in line with European rules.

Austerity measures

Among the government’s proposals is a freeze in public- and private-sector salaries, a one-year raise in the retirement age, replacing student subsidies with loans, the liberalization of the rental market and a €500 million reduction in developmental aid.

The value-added tax rate would also be raised from 19 to 21 percent, but income and real-estate transfer taxes were due to be lowered in 2015.

Some measures, including a higher pension age and real-estate reform, are favored by centrist parties outside the coalition, but it is unclear if they would be willing to vote for it as part of a comprehensive budget deal.

The government formally introduces its spending plans in September, but without a permanent majority, the ruling parties will be hard pressed to convince their European peers they can meet the 3 percent target.

Confidence

Finance Minister Jan Kees de Jager, who has taken a hard line with profligate eurozone member states such as Greece, insisted on Monday that his country can come up with a credible plan.

“The Netherlands will retain its solid fiscal policy and will also show the market it will lower its deficit and also have a path of sustainable government finances,” he said.

A spokesman for the European Commission said they were confident the Netherlands would meets its treaty obligations. “Not just because it would be good for Brussels, but because it would be good for the Dutch economy and the Dutch citizens.”

Discipline

The collapse of the Dutch coalition throws doubt on efforts spearheaded by Germany’s conservative chancellor, Angela Merkel, to enforce budget discipline across the eurozone. There could now be a majority in the Dutch parliament against strict enforcement of the 3 percent deficit cap. Socialist and Labor parties were already opposed to it, arguing that steep and short-term reductions in government spending will only inhibit growth.

The Dutch economy is in recession and expected to shrink almost 1 percent this year.

The Netherlands has yet to ratify the latest European fiscal treaty, which was signed by government leaders, except the prime ministers of the Czech Republic and the United Kingdom, in March.